There are generally three modes of trademark squatting by trademark squatters: Mode One, squatting on a trademark and putting it into actual use, which is the most common scenario. In this case, the right holder can often file a trademark infringement lawsuit after dealing with the squatted trademark. The squatting behavior of the squatter is usually considered as malicious and taken into account in determining the compensation amount. Mode Two, squatting on a trademark and then filing a counterclaim against the right holder for infringement. For instance, the "Gelisi" case and the "Gubei Water Town" case [1] are both of this type. In the "Gubei Water Town" case, the Beijing Intellectual Property Court determined that such malicious registration and abuse of trademark rights violated Article 2 of the Anti-Unfair Competition Law and constituted unfair competition. Mode Three, squatting on a trademark without putting it into actual use or suing the right holder. While this scenario seemingly does not cause direct harm, it essentially occupies the resources of the right holder, making it difficult for the genuine right holder to register the trademark, and there is actually a potential for the squatter to sell it for profit. Therefore, regardless of the mode, they all substantially infringe upon the legitimate rights and interests of the right holder, causing negative impacts.

Previously, Article 83 of the Trademark Law (Draft) issued by the China National Intellectual Property Administration (CNIPA) included a provision on "Civil Compensation for Malicious Trademark Squatting," stating that if malicious application for trademark registration causes losses to others, the affected party may file a lawsuit with the people's court and request compensation for losses. The amount of compensation shall at least include the reasonable expenses incurred by the other party to stop the malicious application for trademark registration.

However, under the current trademark law system, the right holder can only rely on legal provisions to take measures such as opposition and invalidation against squatted trademarks. The CNIPA can only refuse to approve the registration or invalidate the trademark but cannot require the squatter to bear additional legal responsibilities. In other words, the legal consequence of the squatter's squatting behavior is merely that the trademark will not be registered or will be declared invalid, without the need to bear liabilities such as compensation for losses. The costs and losses incurred by the right holder in combating squatted trademarks cannot be directly remedied under the trademark law. Both mere squatting and malicious enforcement of squatted trademarks substantially damage the legitimate rights and interests of the right holder as a business operator. In such cases, there is indeed a need to seek relief under the Anti-Unfair Competition Law.